Wednesday, February 01, 2012

"Imminent Peak Oil Orthodoxy" Under Threat in the Age of Fracking

Fracking and horizontal drilling are revolutionising the global tight gas industry. Global gas markets are beginning to quake as a result. Could the same revolutionary technologies that are shaking the gas dictatorships soon present the same threat to the oil dictatorships, and their friend and ally, the peak oil orthodoxy?

The U.S. oil market could be on the verge of its own fracking revolution, similar to what the natural-gas market is already experiencing. As a result, domestic production is now projected to rise significantly over the coming decades, reducing the relative share of imports in U.S. oil consumption.

...The same controversial technologies used to recover natural gas from deep-rock formations are now increasingly being used to extract oil. Oil is already being produced from shale at several locations throughout the U.S., most notably the Bakken shale in North Dakota.
As Jim Mulva, the chief executive officer of ConocoPhillips, recently said, “The revolution has spread to domestic oil production. And it may track the path it followed with natural gas. We just don’t know yet. But it looks promising.” _BloombergSo far, the US and Canada have been the main beneficiaries of the fracking revolution. But huge tight oil & gas deposits lie undeveloped from China to Argentina to Israel to Poland. In fact, no one knows where large tight oil & gas deposits will be discovered next. The geology of these deposits is somewhat different from conventional oil & gas geology. There is still a lot to learn for both discovery and production.

In 2010, oil companies produced 5.5 million barrels per day of domestic crude. The Energy Information Administration estimates that figure will rise to 6.7 million barrels per day by 2020, mostly because of “continued development of tight oil, in combination with the ongoing development of offshore resources in the Gulf of Mexico.” The U.S. has not produced as much as 6.7 million barrels per day since 1994.

The mirror image of this projected increase in U.S. production of oil and natural gas is a decline in reliance on imports. In 2005 and 2006, about 60 percent of the liquid fuel used in the U.S. was imported. By 2010, that share fell to 50 percent, and it continues to decline. The Energy Information Agency expects it to drop to 37 percent by 2035.

Other analysts believe that even this projection is too conservative because tight-oil production could rise faster than expected. Every time projections are revised, the numbers seem to move higher.

So, will this push oil prices down overall, as shale gas has done to natural-gas prices? For years, analysts have worried that known oil reserves have peaked, so that prices will keep rising. Tight oil could change that dynamic. As the energy analyst Seth Kleinman, a colleague of mine at Citigroup Inc., argues, the price effects of the shift to tight oil “may be more immediate and subtle than the supply-and-demand balances hint at.”

The year ahead, he says, “could really see the death of the peak-oil hypothesis, something that has been underpinning a lot of the structural bullishness on oil.” _Bloomberg

Of course, Russia feels most threatened by these revolutionary developments, followed closely by Iran and Venezuela. As energy customers of these vicious and kleptocratic energy dictatorships discover their own energy resources which can be developed domestically, the upper hand will shift to the customer, away from the extortionate energy dictatorship.

President Obama and much of the worldwide big-money green enterprise are marching in lock-step with Russia and the energy dictatorships, in an effort to kill the fracking revolution. They are joined by much of the "imminent peak oil orthodoxy," which is likewise threatened by the promise of a massive gush of new oil resources. It is a political war, being fought over the prospects of "political peak oil," the only kind of peak oil you will ever see.

As a postscript, it has been interesting to see President Obama attempt to claim credit for the fracking revolution, in the name of big government. Here are the facts of the matter, which reveal Mr. Obama once again as being somewhat loose with the truth.